Network structure, perception level, and participants' welfares

Based on a market consisting of one monopoly and several customers who are embedded in an economic network, we study how the different perception levels about the network structure affect the two kinds of participants' welfares, and then provide some good strategies for the monopoly to mine the information of the network structure. The above question is the embodiment of the \"complex structure and its corresponding functions\" question often mentioned in the field of complexity science. We apply a two-stage game to solve for the optimal pricing and consumption at different perception levels of the monopoly and further utilize simulation analysis to explore the influence patterns. We also discuss how this theoretic model can be applied to a real world problem by introducing the statistical exponential random graph model and its estimation method. Further, the main findings have specific policy implications on uncovering network information and demonstrate that it is possible for the policy-maker to design some win-win mechanisms for uplifting both the monopoly's profit and the whole customers' welfare at the same time. © 2014 Wiley Periodicals, Inc. Complexity 21: 349-362, 2015